Despite receiving huge subsidies, insurers suffered larger losses selling qualified health plans in the individual market than they did selling nearly identical policies in the small group market, a new study from George Mason University has found.
These losses were driven largely by the fact that those who enrolled in individual qualified health plans, or QHPs, had much higher claims costs than those enrolled in small group QHPs. The same held true for people in non-group QHPs -- plans that were in place before the Affordable Care Act exchanges launched, and ACA-compliant plans that are not certified as QHPs.
Lower-than-expected enrollment in the new insurance exchanges, and significant insurer losses, have resulted in substantial premium increases and insurer withdrawals from state markets, the report found. Researchers say this casts doubt on the long-term sustainability of certain aspects of the ACA.
Department of Health and Human Services data from 2014 was used to analyze the performance of 174 insurers who offered QHP coverage to both individuals and small groups, generally firms with fewer than 50 workers. Total revenue per enrollee, before risk corridor claims, was almost $5,500 for individual QHPs but only a hair above $4,800 for group QHPs. This disparity was spurred largely by subsidies from the reinsurance program that totaled 20 percent of individual QHP premium income.
Insurers received average reinsurance payments of $915 per enrollee, on net, for their individual QHPs in 2014, researchers said. For group QHPs, however, insurers had to pay into the reinsurance program an average of $61 per enrollee.
Insurers would have needed roughly 31 percent higher average premiums to have covered their expenses selling individual QHPs in 2014 without the reinsurance program; the study's authors said that large premium increases will be necessary because enrollees are more costly than expected and because the reinsurance program expires by the end of the year.
Individual QHPs had loss ratios of 110 percent, compared to loss ratios for group QHPs and individual non-QHPs of 82 and 83 percent, respectively. The large losses for individual QHPs were the result of high medical claims, authors said.
Insurers' average per-enrollee medical claim for individual QHPs was about $4,900, almost double the nearly $2,600 for individual non-QHPs, and higher than the roughly $4,000 for group QHPs. In proportional terms, enrollee medical claims for individual QHPs were 24 percent higher than for group QHPs and 93 percent higher than for individual non-QHPs.
The study claims the dramatically different experiences of nearly identical plans in the two QHP markets may be explained by features of group coverage that limit adverse selection pressures resulting from the ACA's insurance market rules and premium restrictions.
The poor performance of individual QHPs relative to group QHPs was consistent across insurers, although overall performance varied, with the new ACA-sponsored cooperatives performing the worst. Kaiser Permanente, with its sizeable market share, fared the best in the individual market, the data show.
Although the reinsurance program significantly lowered individual QHP premiums in 2014, premiums were still not low enough to attract a sufficient number of younger and healthier enrollees to create a balanced risk pool, according to the study.
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Preliminary data show that insurers' losses were significantly larger in 2015 than in 2014. These increased losses, coupled with the scheduled expiration of the reinsurance and risk corridor programs, will likely lead to substantially higher premiums in 2017, authors said. Yet higher premiums will further reduce the attractiveness of individual QHPs to younger and healthier enrollees, resulting in a market that will appeal primarily to lower-income individuals who receive large subsidies, and to people with expensive health conditions.
To avoid, individual insurance market changes made by the ACA will have to be revised, the researchers said.